Obama stocks among best after re-election as rally tested

Even with the flawed roll out of health-care reform and uproar over spying, Barack Obama is enjoying one of the best stock markets for a re-elected president. Signs are building that it might not last.

This year’s 24% jump in the Standard & Poor’s 500 Index (CME:SPZ13) is the third-biggest annual rally after a president was returned to office since the 1930s, trailing Bill Clinton and Ronald Reagan, according to data compiled by Bloomberg. The index has climbed 108% since Obama became president, adding more than $10 trillion in equity market value.

Record Federal Reserve stimulus, interest rates around zero% and a doubling of corporate profits since they fell to a five-year low in 2008 helped sustain stock increases under Obama. The rally that began just after he took office now exceeds the average length of bull markets by almost a year and valuations are up 18% in 2013. Add to that prospects for the Fed to curtail stimulus, threatening higher borrowing costs, and the outlook for further gains under Obama is grimmer.

“The president came in at a highly unusual time with markets in complete disarray,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager at Stifel Nicolaus & Co., which oversees about $130 billion, said by phone Nov. 6. “After the rally this year, we’re fairly valued at best. The next stage of this will have to be an improving economic outlook and earnings outlook well above where we stand.”

Republican Returns

While history shows re-elected Republicans have had better stock-market performance, with an average 5% gain in the first year of their second terms compared with a 1.2% loss for Democrats, 2013 is on track for the best return in a decade. This year’s rally in the S&P 500 is the broadest ever, with shares of Assurant Inc., Delta Air Lines Inc. and 442 more companies rising, data since 1990 compiled by Bloomberg show.

The Obama administration is fighting a global backlash over revelations that the National Security Agency spied on foreign leaders, hacked into fiber-optic cables to get data from Google Inc. and Yahoo! Inc. and intercepted communications of Americans without warrants. The president also has been defending his Affordable Care Act this month after website glitches delayed thousands of people from signing up for the health-insurance exchanges.

The S&P 500 rose 0.5% to 1,770.61 last week after gross domestic product and jobs reports beat projections and Twitter Inc. almost doubled in its trading debut. The index climbed 0.1% to 1,772.28 at 10:13 a.m. New York time.